search query: @indexterm Foreign investment / total: 1949
reference: 79 / 1949
| Author: | Ottaviano, G.I.P. Turrini, A. |
| Title: | Distance and foreign direct investment when contracts are incomplete |
| Journal: | Journal of the European Economic Association
2007 : JUN, VOL. 5:4, p. 796-822 |
| Index terms: | foreign investment direct investment multinational companies contracts models |
| Freeterms: | FDI |
| Language: | eng |
| Abstract: | This study deals with incomplete contracts in a model where multinational firms from a certain country (called as 'North') can decide to serve a foreign market (as 'South') through exports or through horizontal foreign direct investment (FDI). FDI relies on the supply of specialized intermediate inputs supplied either by suppliers of 'North' or by those located in 'South'. Intermediate sourcing contracts are complete in 'North' but not in 'South'. If contracts of 'South' were also complete, FDI would arise only when trade barriers (here as: tr-brs.) are high enough. Insted, incomplete contracts in 'South' generate a non-linear relation btw. tr-brs. and FDI emerges also when tr-brs. are low enough. The reason is the positive effect that low tr-brs. have on the bargaining power of final producers as to their suppliers of 'South'. |
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